Key Vocabulary

• Average Down: An investment strategy where an investor purchases additional shares of a stock as its price decreases, thereby lowering the average cost per share.

• Bear Market: A market condition characterized by a steady decline in stock prices over time.

• Bull Market: A market condition marked by a steady increase in stock prices over time.

• Capital Gain: The profit made when selling an asset for more than its purchase price.

• Compound Interest: Interest calculated on the initial principal and also on the accumulated interest from previous periods.

• Declaration Date: The date a company announces it will pay a dividend, including details on the amount, record date, and payment date.

• Dividends: Payments made by a corporation to its shareholders, representing a portion of the company's earnings.

• Ex-Dividend Date (or Ex-Date): The cutoff date by which an investor must own the stock to receive the upcoming dividend.

• Interest: The cost of borrowing money or the return earned on an investment, usually expressed as a percentage of the principal amount.

• Interest Income: Earnings received from interest-bearing accounts or investments, subjected to taxation.

• Paper Gain/Loss: The unrealized profit or loss on an investment, reflecting the difference between current market value and purchase price.

• Payment Date: The date on which a declared dividend is paid to shareholders.

• Progressive Tax: A tax system where tax rates increase as income increases, affecting higher earners more heavily.

• Realized Gain/Loss: The profit or loss recorded when an investment is sold, as opposed to paper gains or losses.

• Record Date (or Date of Record): The date by which an investor must be on the company's books as a shareholder to receive a dividend.

• Regressive Tax: A tax system where the tax rate decreases as the taxable amount increases, often burdening low-income earners more.

• Simple Interest: Interest calculated only on the principal amount.

• Simple Interest Formula: A collection of equations used to determine interest based on various known values.

• Stock: A share of ownership in a corporation, a means for companies to raise capital.

Key Points

Investment Concepts

• Interest: Refers not only to the cost of borrowing but also to the return on lending.
• Interest Types: Includes simple interest (only on principal) and compound interest (on principal plus accumulated interest).

Stock Market Behavior

• Bull vs Bear Market: A bull market is characterized by rising prices, while a bear market indicates falling prices.

Gains and Losses

• Paper vs Realized: Paper gain/loss is theoretical and based on market value, while realized gain/loss occurs upon selling the asset.

Taxation

• Types of Taxes: Differentiates between progressive taxes (higher rates for higher income) and regressive taxes (lower rates for higher income).
• Types of Income: Discusses interest income and dividend income and their respective tax implications.

Dividends

• Dividend Mechanics: Involves declaration, record, and payment dates, as well as ex-dividend rules.

Important Data

• Simple Interest Formula:

  • General Formula:
    $$\text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time}$$
  • Rearranged for specific missing values:
    • If interest is missing:
      $$\text{Interest} = \frac{\text{Principal} \times \text{Rate} \times \text{Time}}{\text{Rate}}$$
    • If time is missing:
      $$\text{Time} = \frac{\text{Interest}}{\text{Principal} \times \text{Rate}}$$
    • If rate is missing:
      $$\text{Rate} = \frac{\text{Interest}}{\text{Principal} \times \text{Time}}$$

• Tax Rates:

  • Interest income from various accounts is subject to a 20% final tax, except for certain foreign deposit accounts, which are taxed at 15%.
  • Dividend income is usually taxed at a rate of 10% for individuals.

Additional Aspects

• Investment Strategies: Understanding the average down technique aids in managing investment costs over time.

• Stock Ownership: Grasping the concepts of stock, dividends, and market behavior is crucial for informed investing.

• Taxation Principles: Comprehending the implications of different tax systems helps individuals plan their finances effectively.

• Market Indicators: The distinction between red (loss) and green (gain) is essential for quick market evaluations.